TAXES  (CONT)

To use the OTS numbers, suppose we put up $100 billion to guarantee 500,000 mortgages ($200,000 per mortgage). Let's say 40 percent of the mortgages subsequently go bad, costing an average of 50 percent of the face value, since homes will have to be sold at large losses. That means the OTS scheme will cost taxpayers $20 billion.

Of course proponents of the OTS scheme will point out we still allowed 300,000 low- and moderate-income families to stay in their houses. That is not much to show for our $20 billion investment. First, a substantial number of these homeowners - say 100,000, or one fifth - would have kept their homes in any case. That means we spent $20 billion to keep 200,000 people as homeowners. That's $100,000 per homeowner.

Furthermore, the vast majority of these homeowners will sell their homes before they ever accumulate a dime in equity. And they will almost certainly pay far more in mortgage and property tax each month than they would pay to rent a comparable home. This is housing policy that only a hare-brained Washington bureaucrat could love.

Oh yeah, the policy is an effective way to get money to Citigroup and other troubled banks, so at least it will do some good.

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